It was hard to find where to buy electricity generated from renewable energy. Sellers also could not find buyers. The government has opened a marketplace that brings both sides together in one place.
On the 27th, the Ministry of Climate, Energy and Environment held the “Renewable Energy Direct Power Purchase (PPA) Brokerage Platform Launch and Participation Agreement Ceremony” at L Tower in Seocho-gu, Seoul, together with the Korea Energy Agency and renewable-energy-related associations and companies. It is a hub that gathers supply and demand information to make it easier for companies to procure renewable energy.
Direct power purchase is a method in which a power producer and a company buy and sell electricity directly without going through Korea Electric Power Corporation. It is commonly called a PPA. In this structure, a business that builds a solar or wind power plant signs a long-term contract with a specific company and supplies the electricity it produces.
Why are companies looking for renewable electricity?
Demand came from overseas. Global companies such as Apple and Microsoft have been requiring their suppliers as well to use renewable energy, leaving Korean export companies with little choice but to procure it. A pledge to cover 100% of electricity use with renewable energy is called RE100.
The Carbon Border Adjustment Mechanism introduced by the European Union also added pressure. Under this system, products made with high emissions effectively face a tariff, meaning the source of the electricity used becomes part of export costs. The burden is especially heavy for industries that consume large amounts of electricity, such as semiconductors, batteries, and automobiles.
The problem was how to buy it. Renewable-energy plants are scattered across the country, and they vary widely in size. Companies that wanted to buy power had to search for suitable plants on their own or find them through intermediaries. Power producers also struggled to find companies to sell to.
When both sides remain unaware of each other’s information, transactions do not happen. Middlemen charge fees for connecting the two sides, and there is no standard for comparing contract terms. This is the point at which the government diagnosed information asymmetry as a factor restraining the market.
An analogy with real estate makes it easy to understand. Before websites that gathered listing information existed, people had to go around in person to find a house. When listings are gathered in one place, you can compare terms and gauge market prices. That is the same effect the brokerage platform is aiming for.
What is included in the first three contracts?
Before the official launch, the platform underwent a pilot operation from July 15 with more than 40 companies and associations participating. This was a process to check whether the system would run stably and to secure buying and selling volumes in advance.
At the launch ceremony, three memorandum agreements totaling 210 MW were signed. The first is a 9 MW solar project involving the Korea Solar Power Business Association, the National Solar Power Association, and Hyundai Engineering & Construction.
The second is a 30.8 MW wind project involving Yukbaeksan Wind Power, Hyundai Engineering & Construction, and Hyundai Motor Group. The third is a total of 170 MW, consisting of 100 MW of solar and 70 MW of wind, signed between SK Eternix and Samsung Biologics.
It is not easy to grasp how large 210 MW is. Since one nuclear power plant is typically around 1,000 MW, this is roughly one-fifth of that. Solar output varies depending on the weather, so a simple comparison is difficult, but in terms of household electricity use, it is a scale that could supply tens of thousands of homes.
One noteworthy point is that two solar associations took part as contract parties in the first case. Small-scale solar producers have difficulty signing contracts with large companies on their own because their generation volumes are too small. If the associations bundle the output of multiple plants and negotiate on their behalf, individual operators can also enter the market.
The agreement included the ministry, the Korea Energy Agency, related associations, power producers, suppliers, and RE100 participating companies. They agreed to cooperate on policies and institutional improvements to activate direct power transactions, expand trading using the brokerage platform, and support participation by small and medium-sized power producers.
Lee Ho-hyeon, second vice minister of the Ministry of Climate, Energy and Environment, said, “The brokerage platform is the foundation for easing information asymmetry among market participants and connecting it to actual transactions,” adding, “We will create an inclusive market so that small and mid-sized companies and small-scale power producers can also procure renewable energy smoothly.”
Will the doors open for small and medium-sized companies too?
Simply opening a platform does not automatically increase transactions. Several challenges remain.
Price is the first hurdle. Electricity bought through direct power purchase is often more expensive than electricity bought from KEPCO. Although long-term contracts have the advantage of avoiding price volatility, companies must accept the burden of higher electricity costs in the short term. This is one reason large companies with the means have led the way while small and medium-sized firms have lagged behind.
The contract period is also a burden. Since power plants are built with a 20-year horizon in mind, contracts are usually long-term as well. It is not easy for small and medium-sized enterprises, which cannot even be sure about their business outlook five years ahead, to commit to a 20-year electricity purchase agreement. A model in which several companies share volumes and contract together is being discussed as an alternative.
The situation for small-scale power producers is similar. Rooftop solar facilities in the several-hundred-kW range fall far short of the volumes large companies want. A channel is needed in which associations or brokerage firms bundle multiple plants into a single product. The first contract, in which associations played a leading role, may serve as a model.
For the platform to be used in practice, how transparently information is disclosed matters. If listings are posted but prices and terms still have to be negotiated separately, it will not be much different from the current situation. There are calls for standard contracts and reference price information to be provided together so that even parties with weaker bargaining power can gauge the terms.
There is also the transmission grid issue. Solar plants are concentrated in South Jeolla and Jeju, but there are not enough transmission lines to send the power to factories in the Seoul metropolitan area. Even if contracts are signed, transactions cannot be completed if the electricity cannot be transported. This is why voices have long called for grid expansion to keep pace with the growth in power plants.
Renewable-energy procurement is no longer just an environmental issue. For export companies, it has become a condition for keeping business partners, and for companies building data centers, it has become a variable that can determine whether a project is approved. Now that the market has opened, the next point to watch is how many companies actually cross the threshold.